Rumors have been circulating that Microsoft will be pricing their upcoming Windows 8 RT powered tablet, the Surface, at an astonishing low price of only $199.99. This price isn’t unusual in and of itself, when it’s tacked onto a tablet that usually features a lower resolution, 7-inch display, no rear camera and a slightly cheaper build quality. This is done to keep costs to a minimum, look at the Kindle Fire and Nexus 7 as examples. What Microsoft “may” be planning, could possibly disrupt the entire tablet market, while at the same time, taking a massive loss on each tablet simply to get Windows 8 RT some serious marketshare, which may or may not pay off down the road. Microsoft certainly has the bank account to fund such a loss, but do smaller, third party companies?
The idea of selling a product at a loss to gain momentum is not unheard of, even for Microsoft who learned this lesson with the original XBOX. To gain ground in the highly competitive video game market, Microsoft had to lose money on every XBOX they sold, hoping to make money back on the software. Fast-forward several years later and Microsoft is the king of the video game market, now dominating veterans like Sony and Nintendo in the home console business, granted XBOX Live had a lot to do with that, but the path to glory was littered with burned cash. While Microsoft has a steady income, from previous versions of Windows licenses, peripherals, XBOX and several other avenues, like 800 million a year from Android royalties; OEM’s like Acer, Toshiba, and ASUS do not. They rely strictly on their hardware business to bring them a profit. So how can they compete with Microsoft, who can afford to sell a 10-inch+ tablet with great specs and suburb build quality for only $199? The truth is, they can’t. They’ll have to find another way to make their tablets, based on Windows 8 RT special, be it features, functions or design. The other option is that they don’t make a tablet using the latest version of Windows at all, but at the same time, potentially missing out on a growing new market.
Windows manufacturers aren’t the only ones that could be affected by Microsoft’s plan, the whole tablet industry as a whole could be in danger, including Android and iOS. When a top quality device is released at a bargain price, it devalues everything around it. Think of it this way, picture yourself living in a nice, well-to-do neighborhood, you have a house that cost you $450K and life is good, most of your neighbors paid about the same for their houses. Then one day a neighbor three doors down loses his job and his house goes into foreclosure. At the same time, the neighbor across the street needs to sell his house to move for a job. Guess what, the home in foreclosure needs to be sold, and fast so the bank gets paid, so they drop the price to around $250K. Now the guy across the street can’t sell his for the $435K he was hoping for and now has to compete with this cheaper home by lower his price dramatically, regardless of the fact that his house is worth more. In this end, this cuts the profit on the neighbor across the street, which will ultimately affect what he can buy where he moves, if he can afford anything at all. He may end upside down in his mortgage, which could prevent him from buying anything and going into bankruptcy. If Microsoft undercuts it’s competitors and sells a 10-inch tablet at $199, that means Amazon and Google will have to lower the price of their 7-inch tablets even more to stay competitive, costing each company even more money. Then there is Apple, who typically doesn’t bend to the will and strategies of their competitors, but even they would have to feel the squeeze of a $199 tablet from Microsoft, especially if they plan to launch a new 7-inch iPad Mini for $250-$300.
In the end, while a cheap 10-inch tablet sounds good to consumers, we must also think long term and what this will do to competition. We could lose the option of choice if manufacturers decide to fold up shop and move on to something else. Either competitors will turn their backs on tablets, not willing to take the gamble or they’ll be forced to use cheaper components, meaning an overall crappy product. Is that what you really want?